Institutional Equities India Research Banking October 23, 2012 QUARTERLY REVIEW Lower Provisions and Tax Income Bloomberg: SNDB IN Reuters: SBNK.BO reversal props In Q2FY13, s performance came better than our expectations with PAT growing at 43.5% YoY (up 5.3% QoQ) to Rs4.6 bn, owing to lesser than expected NPA provisions. NII grew 6% YoY (up 5.4% QoQ) and NIM improved 14 bps QoQ at 3.33%. Asset quality continued to remain stable. However, balance sheet growth continues to remain weak. Tepid loan Growth: Advances grew at 12.7% YoY (down 0.3% QoQ) and Deposits grew 10.5% YoY (down 1% QoQ). Consequently, C D ratio increased 40 bps to 81.3%. CASA deposits increased 8.1% YoY (up 5.2% QoQ). CASA ratio improved by 170 bps to 29.9%. The management has guided 15% credit growth for FY13. Asset Quality remains stable: s asset quality continues to remain stable. During the quarter, net incremental slippages amounted to Rs 1.0 bn. Gross NPA increased by 9 bps to 2.47% and Net NPA remained flat at 0.92%. The provision coverage ratio improved from 80.7 to 82.3%. The bank restructured loans worth Rs 12 bn in Q2FY13 and the cumulative restructured loan book stood at Rs 92.6 bn (7.2% of loan book). Expansion in NIMs: NIMs improved 14bps sequentially to 3.33% as cost of deposits declined by 8 bps to 7% due to increase in CASA share sequentially. We expect NIM to remain around 3.2% in FY13. Outlook & Valuation At the CMP the stock is trading at 5.0x and 4.5x FY13E and FY14E EPS, and at 0.85x and 0.73x FY13E and FY14E ABV respectively. We have increased our estimates for FY13 by 6.5% and have increased our price target by 3% to Rs142 valuing the stock at 1.0x FY13E and 0.85x FY14E ABV and maintain BUY rating on the stock. Key Financials Y/E Mar (Rs mn) FY10 FY11 FY12 FY13E FY14E Net Interest Income 27,398 43,828 50,850 57,615 68,946 Pre Provision Profit 18,737 27,498 33,468 37,924 48,492 PAT 8,133 10,479 13,134 16,521 19,051 EPS (Rs) 15.6 20.0 22.9 27.4 31.6 ABV (Rs) 87.3 101.5 119.7 143.2 167.6 P/E (x) 7.8 6.1 5.3 4.4 3.9 P/ABV (x) 1.4 1.2 1.0 0.9 0.7 Gross NPA (%) 2.2 2.4 2.5 2.4 2.6 Net NPA (%) 1.1 1.0 1.0 1.0 1.0 ROE (%) 16.6 17.6 17.9 18.7 18.3 ROA (%) 0.6 0.7 0.8 0.8 0.8 Recommendation BUY CMP: Rs121 Target Price: Rs142 Upside (%) 18% Stock Information Market Cap. (Rs bn / US$ mn) 73/1,357 52 week High/Low (Rs) 126/67 3m ADV (Rs mn /US$ mn) 83/1.6 Beta 1.2 Sensex/ Nifty 18,793/5,717 Share outstanding (mn) 602 Stock Performance (%) 1M 3M 12M YTD Absolute 14.7 20.5 18.7 76.5 Rel. to Sensex 14.5 10.0 6.1 45.1 Performance 19,500 17,500 15,500 Oct 11 Dec 11 Jan 12 Feb 12 Apr 12 May 12 Jun 12 Jul 12 Sep 12 Oct 12 Sensex (LHS) Source: Bloomberg Earning Revision (%) FY13E FY14E NII 0.5 1.5 Op. Profit 2.3 0.1 PAT 6.4 0.2 Source: Karvy Institutional Research Analysts Contact Paresh Jain 022 6184 4324 paresh.jain@karvy.com Hatim Broachwala, CFA 022 6184 4329 hatim.broachwala@karvy.com 130 120 110 100 90 80 (RHS)
October 23, 2012 Exhibit 1: Quarterly Snapshot Q2FY13 Q2FY12 Q1FY13 YoY (%) QoQ (%) Interest Income 42,762 37,712 42,425 13.4 0.8 Interest Expenses 28,854 24,582 29,234 17.4 (1.3) Net Interest Income 13,908 13,130 13,191 5.9 5.4 NIM (%) 3.33 3.44 3.19 Non Interest Income 2,702 2,444 2,356 10.5 14.7 Operating Income 16,610 15,574 15,547 6.6 6.8 Staff Cost 5,651 4,490 4,850 25.9 16.5 Other Op Exp 2,526 2,174 2,287 16.2 10.5 Total Operating Expenses 8,178 6,664 7,137 22.7 14.6 Cost to Income (%) 49.2 42.8 45.9 15.1 7.3 Operating Profit 8,432 8,911 8,410 (5.4) 0.3 Provisions 4,796 5,069 5,128 (5.4) (6.5) PBT 3,636 3,841 3,282 (5.3) 10.8 Tax (998) 612 (1,120) Na (10.9) effective tax rate (%) (27.4) 15.9 (34.1) PAT 4,634 3,229 4,402 43.5 5.3 EPS (Rs) 7.7 5.6 7.3 36.7 5.3 Deposits 1,558,540 1,410,823 1,572,760 10.5 (0.9) Advances 1,287,950 1,142,030 1,291,710 12.8 (0.3) Gross NPA 31,786 27,214 30,768 16.8 3.3 Net NPA 11,644 10,518 11,848 10.7 (1.7) Gross NPA (%) 2.5 2.4 2.4 Net NPA (%) 0.9 0.8 0.9 Return on asset (Annulised %) 1.0 0.8 1.0 2
October 23, 2012 Exhibit 2: Income Statement Y/E Mar (Rs mn) FY10 FY11 FY12 FY13E FY14E Interest Income 100,472 114,509 152,684 176,880 198,278 Interest expense 73,074 70,681 101,833 119,265 129,332 Net interest income 27,398 43,828 50,850 57,615 68,946 Fees 2,842 4,422 5,514 6,395 8,475 Profit on sale of securities 3,889 352 888 1,015 1,480 Other Income 11,675 9,151 10,759 12,200 16,066 Net Revenue 39,073 52,979 61,609 69,815 85,012 Operating Expense 20,336 25,481 28,141 31,891 36,520 Employee Exp 13,378 17,733 18,915 21,120 23,781 Other Exp 6,958 7,748 9,226 10,771 12,739 Operating Profit 18,737 27,498 33,468 37,924 48,492 Provisions 6,997 14,644 19,195 23,603 28,647 Loan Loss Provisions 5,306 9,290 13,997 16,784 20,395 Investment Depreciation (446) 387 385 644 988 Other Provisions 2,137 4,720 2,184 2,620 3,010 PBT 11,740 12,854 14,273 14,321 19,845 Taxes 3,607 2,375 1,139 (2,200) 794 PAT 8,133 10,479 13,134 16,521 19,051 Exhibit 3: Balance Sheet Y/E Mar (Rs mn) FY10 FY11 FY12 FY13E FY14E Equity Capital 5,220 5,733 6,020 6,020 6,020 Reserves & Surplus 51,051 64,776 84,392 98,093 113,973 Shareholderʹs Funds 56,270 70,508 90,412 104,113 119,992 Deposits 1,170,258 1,355,961 1,579,411 1,861,660 2,211,504 Current deposits 101,861 107,388 122,214 154,676 195,027 Saving deposits 263,647 312,066 342,959 409,938 488,931 Term deposit 804,750 936,507 1,114,238 1,297,046 1,527,546 Borrowings 121,727 95,276 105,899 122,880 135,140 Other liabilities 42,254 43,642 48,960 11,167 22,549 Total liabilities 1,390,509 1,565,388 1,824,681 2,099,819 2,489,185 Cash & Balances with RBI 71,891 104,431 88,086 110,659 137,697 Balances with Banks & money at Call 55,447 15,225 50,756 43,880 48,288 Advances 904,064 1,067,819 1,236,202 1,430,735 1,708,131 Investments 330,109 350,676 408,151 470,145 547,178 Fixed Assets 7,014 6,927 13,516 14,154 15,544 Other assets 21,984 20,309 27,970 30,246 32,347 Total assets 1,390,509 1,565,388 1,824,681 2,099,819 2,489,185 3
October 23, 2012 Exhibit 4: Ratios FY10 FY11 FY12 FY13E FY14E Growth (%) NII growth 7.5 60.0 16.0 13.3 19.7 Pre provision profit growth 12.1 46.8 21.7 13.3 27.9 PAT growth (10.9) 28.8 25.3 25.8 15.3 Business (%) Deposit growth 1.0 15.9 16.5 17.9 18.8 Advance growth 10.9 18.1 15.8 15.7 19.4 Business growth 5.1 16.8 16.2 16.9 19.1 CD 77.3 78.8 78.3 76.9 77.2 CASA 31.2 30.9 29.5 30.3 30.9 Operating efficiency (%) Cost to income 52.0 48.1 45.7 45.7 43.0 Cost to assets 1.5 1.7 1.7 1.6 1.6 Spreads (%) Yield on advances 9.0 9.3 10.7 10.7 10.3 Yield on investments 7.1 6.5 7.2 7.4 6.9 Cost of deposits 5.8 4.9 6.4 6.4 5.9 Yield on Funds 7.7 7.9 9.2 9.2 8.8 Cost of funds 5.8 5.1 6.4 6.4 5.9 NIMs 2.1 3.0 3.1 3.0 3.1 Capital adequacy (%) Tier I 8.2 9.3 8.9 8.4 8.2 Tier II 4.5 3.7 3.3 2.7 2.5 Total CAR 12.7 13.0 12.2 11.1 10.8 Asset Quality (%) Gross NPA 2.2 2.4 2.5 2.4 2.6 Net NPA 1.1 1.0 1.0 1.0 1.0 Provision coverage(excl technical write offs) 52.0 60.3 62.8 59.8 62.7 Slippage (mn) 14,915 15,930 31,563 39,859 40,767 Return (%) ROE 16.6 17.6 17.9 18.7 18.3 ROA 0.6 0.7 0.8 0.8 0.8 Per share (Rs.) EPS 15.6 20.0 22.9 27.4 31.6 BV 100.1 116.1 133.5 159.7 186.9 ABV 87.3 101.5 119.7 143.2 167.6 Valuation(x) P/E 7.8 6.1 5.3 4.4 3.9 P/BV 1.2 1.1 0.9 0.8 0.7 P/ABV 1.4 1.2 1.0 0.9 0.7 4
Rangachari Muralikrishnan Institutional Equities Team Head Institutional Equities / Research / Strategy +91 22 61844301 muralikrishnan@karvy.com Shridhar Iyer Head Institutional Sales +91 22 61844302 shridhar.iyer@karvy.com K. Anant Rao Head Sales Trading & Derivatives +91 22 61844303 k.anantrao@karvy.com Uday Raval Karvy Inc. USA +1 212 2674334 udayr@karvy.com INSTITUTIONAL RESEARCH Analysts Industry / Sector Desk Phone Email ID Dwaipayan Poddar Chief Technical Strategist +91 22 61844372 dwaipayan.poddar@karvy.com Hatim Broachwala, CFA Banking +91 22 61844329 hatim.broachwala@karvy.com Jagadishwar Pasunoori, CFA, FRM MidCap +91 40 44857912 jagadishwar.p@karvy.com Manoj Kumar Manish Derivatives and Quant Analyst +91 22 61844327 manojkumar.m@karvy.com Maruti Kadam Automobiles / Metals & Mining +91 22 61844326 maruti.kadam@karvy.com Mitul Shah Automobiles +91 22 61844312 mitul.shah@karvy.com Nishith Sanghvi Pharmaceuticals +91 22 61844325 nishith.s@karvy.com Naveen Trivedi FMCG +91 22 61844316 naveen.trivedi@karvy.com Pallav Agarwal Metals & Mining +91 22 61844317 agarwal.pallav@karvy.com Paresh Jain BFSI +91 22 61844324 paresh.jain@karvy.com Parikshit Kandpal Infra / Real Estate / Strategy +91 22 61844311 parikshit.kandpal@karvy.com Rahul Sharma Pharmaceuticals +91 22 61844310 rahul.sharma@karvy.com Rahul Singh MidCap +91 40 44857911 rahulsingh@karvy.com Rajesh Kumar Ravi Cement & Logistics +91 22 61844313 rajesh.ravi@karvy.com Rupesh Sankhe Power/Capital Goods +91 22 61844315 rupesh.sankhe@karvy.com Vinay Nair Oil & Gas +91 22 61844319 vinaynair@karvy.com INSTITUTIONAL SALES Dinesh Bajaj Sales +91 22 61844341 dinesh.bajaj@karvy.com R. Sriram Sales +91 22 61844340 sriram.rangarajan@karvy.com Shabbir Dahodwala Sales (USA) +1 212 2674334 shabbir@karvy.com Tejash Gandhi Sales +91 22 61844345 tejash.gandhi@karvy.com INSTITUTIONAL SALES TRADING & DEALING Bhavesh Gandhi Institutional Dealer +91 22 61844368 /69 bhavesh.gandhi@karvy.com Prashant Oza Institutional Dealer +91 22 61844370 /71 prashant.oza@karvy.com Parag Shah Sales Trader +91 22 61844364 /65 parag.shah@karvy.com Sriram Jagdish Sales Trader +91 22 61844366 /67 sriram.jagdish@karvy.com Gurdarshan Singh Kharbanda Sales Trader +91 22 61844368 / 69 gurdarshansingh.k@karvy.com PRODUCTION Asim Kumar Mohapatra Editor +91 22 61844318 asim.mohapatra@karvy.com Vishal Randive Database Analyst +91 22 61844321 vishal.randive@karvy.com Vijayalaxmi Moolya Production +91 22 61844328 vijayalaxmi.m@karvy.com
Stock Ratings Absolute Returns Buy : > 15% Hold : 5 15% Sell : < 5% For further enquiries please contact: research@karvy.com Tel: +91 22 6184 4300 Disclosures Appendix Analyst certification The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures nor other derivatives related to such securities. Karvy Stock Broking Limited Institutional Equities Office No. 702, 7 th Floor, Hallmark Business Plaza, Opp. Gurunanak Hospital, Mumbai 400 051 Regd Off : 46, Road No 4, Street No 1, Banjara Hills, Hyderabad 500 034. Karvy Stock Broking Research is also available on: Bloomberg KRVY <GO>, Thomson Publisher & Reuters.